VenEconomy :
A chain reaction of destruction

At the risk of sounding repetitive and even though it’s tantamount to whistling in the wind, it has to be said yet again: the policies of “21st Century Socialism” only bring destruction to the economy and abject poverty to the population.
Just two examples will suffice to give an idea of the disastrous course to communism on which Hugo Chávez has set Venezuelans:

The first is the tragic tale of the steel tube factory, Tubos de Acero de Venezuela S.A. (TAVSA), which is a victim of PDVSA’s collapse, in a kind of chain reaction.

When Hugo Chávez announced the state takeover of TAVSA this year, the factory had been manufacturing, almost exclusively, seamless tubes for the Venezuelan oil industry for 40 years, first as an affiliate of the state-owned SIDOR and later as a company belonging to Tenaris of the Techint Group, operating independently of SIDOR.

Unfortunately, this year, as had already happened to hundreds of private companies, the red statizing locusts fell on TAVSA and a trap was set to paint it into a corner (par for the course in these revolutionary times). First of all, PDVSA, practically its only customer, delayed paying TAVSA for the tubes it was supplying for months, with the result that the debt came to some $53 million by February 2009. As a consequence, TAVSA fell behind with its payments to SIDOR, owing it some $10 million. Then, on February 17, SIDOR –by now in state hands- unilaterally suspended the supply of the steel billets TAVSA needed to manufacture its tubes.

Subsequently, on May 22, the government gave TAVSA the coup de grâce, when President Hugo Chávez announced that the factory (which had stopped production) would be taken over by the State. Initially it was attached to PDV Industrial, located in Maracaibo, and later it was decreed that it would operate within the boundaries of SIDOR and use the same electricity, gas, and water services as the state-owned steel mill.

Before this crisis, TAVSA was supplying PDVSA with some 65,000 tons a year of tubes of different specifications. Today, the state-owned TAVSA is not operating; SIDOR is still not supplying it with raw material; PDVSA’s debt with TAVSA and TAVSA’s debt with SIDOR have still not been paid; and, now, on top of that, PDVSA has to import tubes that could perfectly well be produced in the country. And as though that were not enough, ironically, the main manufacturer of tubes of this type on the American Continent is Tenaris-Techint, from whom –according to an item in Tal Cual this Wednesday, November 25- PDVSA is buying these tubes through a third party.

The second, possibly not so obvious, example of a chain of destruction that is wreaking havoc in the economy and that has been triggered by the government’s wrongheaded policies is the seizure of land and agro-based businesses.

The effects of this policy of confiscating private property go way beyond the destruction of domestic production and scaring off private investment and are affecting the new recipients of these properties and the entire banking system.
What happens is that the expropriated, confiscated or “rescued” plots of land become property of the State for which the government does not grant the farmers who work this land a title deed but an allocation certificate. Consequently, these farmers are unable to get bank loans to finance their crops since, as they do not have ownership rights over the land and assets, they cannot use them as collateral to take out mortgages or loans of any kind.

This, in turn, puts the banks between a rock and a hard place. If they do not extend credit to farmers, they will fail to fill their compulsory quota of agricultural loans and will, therefore, be fined or even run the risk of being taken over by the State. If they lend without some form of collateral, they run the risk of raising the default rate and of being sanctioned for acting irresponsibly.
So, a chain of destruction is being wrought that is putting production further and further out of reach in a country where unemployment and hunger are already rife.

VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by VeneEconomy on 11/25/2009. Petroleumworld reprint this article in the interest of our readers .

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